Market Trend Commentary & Analysis August 25, 2019

The stock market trend was on step to break a three-week losing pattern. That attempt proved fruitless after China declared retaliatory tariffs on U.S. products, to which President Trump ordered U.S. companies to start looking for an alternative location to China. 

For the week the DIJ average went down 1.0%. The Nasdaq Composite plunged 1.8%, and small-cap Russell 2000 index sank 2.3%, while the S&P 500 dropped 1.4%. Most S&P 500 index sectors turned the course towards the south and ended the trading week in negative territory.

Chart of the week

S&P 500 Index

Click the Image to Enlarge

Technical Analysis and Outlook

The index closed lower on August 23 near Maginot Line, and Key Sup 2840 via obsoletion of the two Mean Sup 2900 & 2864 levels respectively. 

The steady to a higher mode is expecting to take the index back to Mean Res 2935 in two parts interim bullish pattern with a nod of the Trade Selector Signal trademark and BUY entry point symbols (Not shown), while established Key Res 3026 lays above along with Inner Index Rally 3040 rim levels.

The probability of continuation of interim bearish mode and SELL entry point (Trade Selector Signal system trademark symbols - Not shown) might send the index heading towards Mean Sup 2815, while the worst-case scenario may also address second 'VERY MAJOR' Key Sup marked at 2743. 

The market trend and the funhouse

A funhouse is not precisely amusing. Admittedly, there are some things which might entertain you, however in overall, it is just an eerie place intended to frighten or scare someone more than it is to treat them.

I am bringing this to your awareness, only because the stock market trend(s) are beginning to relate a funhouse where the floor shifts abruptly, distortion mirrors makes things look different than they really are, and many other elements form a sense of uncertainty.

The door to this funhouse is an entry of uncertainty, and it was left wide open on Friday's session. Located above the entry door, there was a warning sign that states, 'Enter at your risk.' 

Last Friday's trading session presented an illustration of how quickly the floor can split-shift. The awaited speech from Federal Reserve Chair Jerome Powell was reckoned to be the main event of the day; but, it was usurped by several combative tweets from U.S. President Trump pointed at China and Federal Reserve Chair Jerome Powell.

Notably, the stock market trend was in a gradual uptrend after Fed Chair Powell comments; hence, there was a moderate uptrend following the comments still an uptrend nevertheless as the market still enjoys the possibility of an extended time of accommodative Fed's monetary policy.

Then the trading climate turned on a dime; however, after the second tweet from President Trump, the broader S&P 500 index sank 47 points, or 1.6%, in only eleven minutes. After that second tweet from the president, which turned a pleasant market rebound action into a funhouse happening with trick mirrors.

Brace yourself for impact

We all have witnessed moments like this already, where some tweet from the president upends the market trend. It is feasible the market could quickly shake this off, as it has done in the past with the help of PPT (Plunge Protection Team)

However, the venom delivered at the Fed chair Powell, and the proclamation that American companies need to begin finding alternatives locations to China, boosted the temperature for the stock market which was already hectic and not entirely healthy - The influence of the president's tweets is that they have subdued investor and traders confidence.

Mounting the market trend uncertainty

The market trend uncertainty regarding earnings forecasts will be a source of enormous volatility, though to be fair, there are constant uncertainty wherein earnings forecasts - and everything else for that matter besides 'Death and Taxes.'

Although some periods of uncertainty are much more significant than others, where we see vast swings in equity prices and the significant indices, it's not a stretch to state that we are in one of those trading periods.

The sight of uncertainty is hoisted on just about every significant market front: geopolitics, monetary policy, the economy, trade, fiscal policy,  interest rates, earnings forecasts, and the presidential 2020 election.

These alone are things forming a sense of uncertainty, and they also have all been reared up of late; therefore, this is why I would contend that the stock markets have hit the wall this month.

Final thought

Periods of risen market volatility, which lead to price disruptions, produce some excellent buying opportunities for traders and investors. If one is looking to invest now, favor index sectors or individual companies that are successful and profitable: With stable balance sheets, have sufficient cash flow and pay good dividends.

Within this market trend period where quality is essential, whether one is trading or investing in indices, bonds, currencies, or stocks. That was closing message past week, and it's my concluding word to way out of the funhouse this week.

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